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NYSE:

SCHW

SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation announced today that its net income for
the first quarter of 2018 was a record $783 million, up 31% from $597
million for the prior quarter, and up 39% from $564 million for the
first quarter of 2017.

Three Months EndedMarch 31,

%

Financial Highlights

2018

2017

Change

Net revenues (in millions)

$

2,398

$

2,081

15

%

Net income (in millions)

$

783

$

564

39

%

Diluted earnings per common share

$

.55

$

.39

41

%

Pre-tax profit margin

41.8

%

40.5

%

Return on average common stockholders’ equity (annualized)

18

%

15

%

Note: All per-share results are rounded to the nearest cent, based
on weighted-average diluted common shares outstanding.

CEO Walt Bettinger said, “Our contemporary full-service model continues
to build stronger client relationships and drive record growth, even
during times of market uncertainty. In the first quarter, investors
experienced sharp market swings after nine consecutive quarters of
positive S&P 500® returns. Amidst the volatility, client
interactions surged as we offered the insight and assistance they expect
– call volumes and web logins from both our retail and independent
advisor clients were up nearly 20% and 50% from their respective
quarterly averages. Engagement remained strong during the quarter, with
trading activity rising nearly 40% year-over-year to a new all-time high
and clients continuing to be net buyers of securities. New accounts
totaled 443,000 company-wide – the highest quarterly level in 18 years.
In addition, households new to our Retail business rose 42% versus the
first quarter of 2017. Excluding planned mutual fund clearing outflows
of $84.4 billion, our clients entrusted us with record quarterly core
net new assets of $65.6 billion, implying an annualized growth rate of
7.8% – a level not seen since 2008. This strength in asset gathering
spanned our largest businesses, as Advisor Services and Retail both set
new records, with inflows up 27% and 64%, respectively, from last year.
Our outstanding organic growth helped to partially offset market
declines, and we ended the quarter serving $3.31 trillion in client
assets, up 13% from last year, across 11.0 million active brokerage
accounts, 1.2 million banking accounts, and 1.6 million retirement plan
participants.”

Mr. Bettinger continued, “Operating ‘through clients’ eyes’ remains
central to serving our current clients and fueling growth. Every day we
ask ourselves how we can better support our clients, improve the value
we offer, and make it simpler and easier to do business with us. We were
recently honored as the ‘Highest in Investor Satisfaction with Full
Service Brokerage Firms’ by J.D. Power* for the third consecutive year,
demonstrating the importance of our broad capabilities, which include an
extensive array of advice solutions. Total assets receiving ongoing
advice continued growing faster than client assets overall, totaling
$1.72 trillion at March 31st. The first quarter marked three
years since the launch of Schwab Intelligent Portfolios® and
one year since the introduction of Schwab Intelligent Advisory®
– which, combined with Institutional Intelligent Portfolios®,
reached $30.6 billion in total digital advisory solution assets at
quarter-end, up 92% year-over-year. Also this quarter, we passed an
important milestone for Schwab ETF OneSource™. Launched five
years ago, this program, which offers Schwab clients online
commission-free ETFs, has more than doubled in scope to 254 ETFs
spanning 69 Morningstar categories and now has over $130 billion in
assets. Additionally, we initiated a ‘Sweep Tower’ for uninvested cash,
offering eligible clients extended FDIC insurance of up to $500,000**.
This enhancement broadens Schwab’s range of cash solutions for our
clients, which provide smart features, competitive yields, and
transparency that helps investors make informed decisions. In early
April, we improved our futures trading capabilities, which now include
contingent orders, trade calculators, education, and research, all at a
lower per contract cost of $1.50. We are better positioned than ever to
attract and serve a growing share of U.S. investable wealth by offering
a ‘no trade-offs’ combination of quality service, advice, and innovative
products at a great value – all while leveraging our scale to operate
efficiently and profitably.”

CFO Peter Crawford commented, “We’ve achieved another quarter of record
financial performance, driven in part by sustained business momentum,
higher interest rates, and lower corporate taxes. Net interest revenue
grew 26% to a record $1.3 billion due to larger client cash sweep
balances as well as the impact of the Fed’s 2017 and March 2018 rate
hikes – our net interest margin expanded to 2.12%, up from 1.87% a year
earlier. Asset management and administration fees increased 3% to $851
million due to growing balances in advised solutions, equity and bond
funds, and ETFs, partially offset by lower money market fund revenue as
a result of bulk transfers and 2017 fee cuts. Our clients’ record
trading activity boosted Trading revenue 5% to $201 million, more than
offsetting the commission pricing reductions announced in February of
last year. On the expense front, our 13% first quarter spending increase
reflected strong client metrics and activity, as well as recent market
volatility. Compensation was 10% higher in the first quarter due to
hiring to serve our expanding investor base and growth-related
incentives. Professional services rose by 17%, largely from third-party
fees tied to higher balances in our asset management business, and from
our project spending. Lastly, Other expense grew by 44% mainly due to a
$15 million charge associated with unsecured client margin losses in
volatility-related products during early February. While these factors
contributed to outlays that were a bit above our initial expectations,
the expense scenario we shared at our Winter Business Update
incorporated slightly elevated quarterly comparisons during the first
half of 2018. Altogether, we achieved a 240 basis point gap between
revenue and expense growth, which resulted in a 41.8% pre-tax profit
margin; combined with a lower tax rate of 21.9%, we delivered record net
income of $783 million, up 39% from a year ago.”

Mr. Crawford concluded, “During the first quarter, we actively utilized
available capital to further our client cash strategy. As part of this
process, we transferred approximately $25 billion from sweep money
market funds to bank sweep and paid off $15 billion in Federal Home Loan
Bank advances. The net effect of these moves and client activity lifted
our consolidated balance sheet assets to $248 billion at quarter-end. We
still anticipate crossing the $250 billion threshold in the first half
of 2018. In keeping with the deployment of capital to support bulk
transfers, our preliminary Tier 1 Leverage Ratio at quarter-end declined
to 7.5%, remaining above our operating objective of 6.75%-7%. Our solid
capital position enables Schwab to continue driving profitable growth
while building long-term stockholder value – our first quarter return on
equity reached 18%, the highest since 2009.”

Beginning with the first quarter of 2018, the Business Highlights
section of the earnings release has been discontinued; selected balances
are now located at: www.aboutschwab.com/investor-relations/.

*Disclaimer: Charles Schwab received the highest numerical score in the
J.D. Power 2016-2018 Full Service Investor Satisfaction Study. 2018
study based on 4,419 total responses from 18 firms measuring opinions of
investors who used full service investment institutions, surveyed
November-December 2017. Your experiences may vary. Visit jdpower.com.

**Bank Sweep deposits are held at one or more FDIC-insured banks that
are affiliated with Charles Schwab & Co., Inc. (“Affiliated
Banks”). Funds deposited at Affiliated Banks are insured, in aggregate,
up to $250,000 per Affiliated Bank, per depositor, for each account
ownership category, by the Federal Deposit Insurance Corporation (FDIC).

This press release contains forward-looking statements relating to the
company’s record growth; growth in client base, accounts, and assets;
expense scenario; crossing the $250 billion asset threshold; Tier 1
Leverage Ratio operating objective; profitable growth; and stockholder
value. Achievement of these expectations and objectives is subject to
risks and uncertainties that could cause actual results to differ
materially from the expressed expectations.

Important factors that may cause such differences include, but are not
limited to, the company’s ability to attract and retain clients and
registered investment advisors and grow those relationships and client
assets; general market conditions, including the level of interest
rates, equity valuations, and trading activity; competitive pressures on
pricing, including deposit rates; the company’s ability to develop and
launch new products, services, and capabilities in a timely and
successful manner; client use of the company’s investment advisory
services and other products and services; level of client assets,
including cash balances; the company’s ability to manage expenses; the
timing and amount of bulk transfers; client sensitivity to interest
rates; regulatory guidance; and other factors set forth in the company’s
most recent report on Form 10-K.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of
financial services, with more than 345 offices and 11.0 million active
brokerage accounts, 1.6 million corporate retirement plan participants,
1.2 million banking accounts, and $3.31 trillion in client assets as of
March 31, 2018. Through its operating subsidiaries, the company provides
a full range of wealth management, securities brokerage, banking, money
management, custody, and financial advisory services to individual
investors and independent investment advisors. Its broker-dealer
subsidiary, Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; referrals to independent fee-based investment advisors;
and custodial, operational and trading support for independent,
fee-based investment advisors through Schwab Advisor Services. Its
banking subsidiary, Charles Schwab Bank (member FDIC and an Equal
Housing Lender), provides banking and lending services and products.
More information is available at www.schwab.com
and www.aboutschwab.com.

Includes proprietary equity and bond funds and ETFs held on and off
the Schwab platform. As of March 31, 2018, off-platform equity and
bond funds and ETFs were $10.8 billion and $25.3 billion,
respectively.

(3)

Excludes all proprietary mutual funds and ETFs.

(4)

First quarter of 2018 includes outflows of $84.4 billion from
certain mutual fund clearing services clients. Fourth quarter of
2017 includes an inflow of $16.2 billion from a mutual fund clearing
services client. Second quarter of 2017 includes inflows of $18.3
billion from a mutual fund clearing services client. First quarter
of 2017 includes an outflow of $9.0 billion from a mutual fund
clearing services client.

N/M Not meaningful.

The Charles Schwab Corporation Monthly Activity Report For
March 2018

2017

2018

Change

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Mo.

Yr.

Market Indices (at month end)

Dow Jones Industrial Average

20,663

20,941

21,009

21,350

21,891

21,948

22,405

23,377

24,272

24,719

26,149

25,029

24,103

(4)%

17%

Nasdaq Composite

5,912

6,048

6,199

6,140

6,348

6,429

6,496

6,728

6,874

6,903

7,411

7,273

7,063

(3)%

19%

Standard & Poor’s 500

2,363

2,384

2,412

2,423

2,470

2,472

2,519

2,575

2,648

2,674

2,824

2,714

2,641

(3)%

12%

Client Assets (in billions of dollars)

Beginning Client Assets

2,895.2

2,922.5

2,948.8

2,995.8

3,040.6

3,099.9

3,122.3

3,181.2

3,256.5

3,318.8

3,361.8

3,480.5

3,328.8

Net New Assets (1)

21.2

2.8

24.0

37.7

15.8

18.0

17.8

35.4

15.7

27.0

11.5

(50.5

)

20.2

140%

(5)%

Net Market Gains (Losses)

6.1

23.5

23.0

7.1

43.5

4.4

41.1

39.9

46.6

16.0

107.2

(101.2

)

(43.6

)

Total Client Assets (at month end)

2,922.5

2,948.8

2,995.8

3,040.6

3,099.9

3,122.3

3,181.2

3,256.5

3,318.8

3,361.8

3,480.5

3,328.8

3,305.4

(1)%

13%

Core Net New Assets (2)

21.2

2.8

21.3

22.1

15.8

18.0

17.8

19.2

15.7

27.0

18.7

21.3

25.6

20%

21%

Receiving Ongoing Advisory Services (at month end)

Investor Services

230.9

234.4

239.1

242.2

247.2

249.9

255.0

259.8

265.1

268.7

278.6

273.0

273.2

—

18%

Advisor Services (3)

1,250.9

1,262.7

1,283.4

1,297.6

1,323.8

1,333.1

1,358.6

1,382.6

1,410.8

1,431.1

1,483.7

1,449.5

1,444.4

—

15%

Client Accounts (at month end, in thousands)

Active Brokerage Accounts (4)

10,320

10,386

10,439

10,487

10,477

10,525

10,565

10,603

10,671

10,755

10,858

10,936

11,005

1%

7%

Banking Accounts

1,120

1,128

1,138

1,143

1,154

1,167

1,176

1,181

1,192

1,197

1,210

1,218

1,221

—

9%

Corporate Retirement Plan Participants

1,545

1,543

1,541

1,540

1,540

1,550

1,552

1,556

1,564

1,568

1,580

1,580

1,594

1%

3%

Client Activity

New Brokerage Accounts (in thousands)

138

125

115

117

107

123

106

117

122

147

165

138

140

1%

1%

Inbound Calls (in thousands)

2,111

1,788

1,727

1,736

1,683

1,823

1,709

1,988

1,804

2,046

2,303

2,005

2,145

7%

2%

Web Logins (in thousands)

45,441

39,750

44,024

43,790

42,236

47,290

39,639

51,454

50,583

54,486

64,488

60,830

58,906

(3)%

30%

Client Cash as a Percentage of Client Assets (5)

12.4

%

12.1

%

11.8

%

11.5

%

11.3

%

11.4

%

11.1

%

10.9

%

10.8

%

10.8

%

10.4

%

10.9

%

11.0

%

10 bp

(140) bp

Mutual Fund and Exchange-Traded Fund

Net Buys (Sells) (6, 7) (in millions of dollars)

Large Capitalization Stock

(125

)

346

134

(63

)

(95

)

(1,683

)

(138

)

(51

)

85

1,023

496

715

(158

)

Small / Mid Capitalization Stock

(409

)

(797

)

(285

)

(322

)

(139

)

(293

)

45

378

(144

)

274

(125

)

(167

)

130

International

1,703

2,410

3,610

3,631

2,675

1,705

1,549

1,913

2,627

1,852

4,306

2,685

1,546

Specialized

273

570

529

647

236

279

465

655

58

424

1,569

187

326

Hybrid

563

92

65

(340

)

142

(272

)

460

(118

)

(263

)

307

978

(88

)

529

Taxable Bond

3,876

2,060

3,618

3,499

3,064

3,481

3,809

3,466

2,389

2,561

3,284

155

2,117

Tax-Free Bond

300

155

290

507

453

715

494

452

371

341

1,247

211

247

Net Buy (Sell) Activity (in millions of dollars)

Mutual Funds (6)

2,368

1,116

3,837

2,980

3,201

1,048

3,002

2,401

882

775

4,843

(417

)

1,976

Exchange-Traded Funds (7)

3,813

3,720

4,124

4,579

3,135

2,884

3,682

4,294

4,241

6,007

6,912

4,115

2,761

Money Market Funds

1,218

(4,434

)

(1,167

)

(1,260

)

1,022

2,105

(374

)

213

1,166

2,968

(5,730

)

(4,292

)

(9,100

)

Average Interest-Earning Assets (8)

(in millions of dollars)

218,554

217,407

215,252

214,709

212,108

214,458

216,472

219,658

223,292

228,540

234,619

239,922

241,049

—

10%

(1)

March, February, and January 2018 include outflows of $5.4 billion,
$71.8 billion, and $7.2 billion, respectively, from certain mutual
fund clearing services clients. October and June 2017 include
inflows of $16.2 billion and $15.6 billion, respectively, from
certain mutual fund clearing services clients.

(2)

Net new assets before significant one-time inflows or outflows, such
as acquisitions/divestitures or extraordinary flows (generally
greater than $10 billion) relating to a specific client.

(3)

Excludes Retirement Business Services.

(4)

Periodically, the Company reviews its active account base. In July
2017, active brokerage accounts were reduced by approximately 48,000
as a result of low-balance closures.